On the face of it, we face a difficult dilemma with many of our clients. While some clients come to us and tell us they plan to sell or perpetuate the agency, most are just looking for advice on what to do next. That’s when they present the dilemma, clients who ask us to help them decide between internal perpetuation and a third party sale are asking us to choose between a standard fee and one five times larger. That would present a moral conundrum for many advisors.
In many ways, it mirrors the work you do within insurance. Most agencies start their service with risk assessment and risk management. You only suggest and buy insurance for risks that you can’t manage through practical means. Which leaves you with a similar choice between a high-fee option (lots of insurance) and a lower fee option (minimal insurance with effective risk management). As well as a moral dilemma, you will likely have encountered clients who point to your fee whenever you discuss increased coverage.
Serving Your Clients
For us, the dilemma doesn’t really exist. While we obviously do want to earn a living, we don’t ever let that cloud our judgment. We’re also quite lucky, we believe strongly in the importance of internal perpetuation. In fact, we would prefer it if every client perpetuated internally. As a result, we find it easy to recommend our low-fee option. However, it’s never an automatic decision. We only ever recommend a decision that we think is in the best interest of the client.
We do that because we believe that serving our clients is the most important part of our job. The same goes for insurance agents. No matter how tempting it is to look for the high-fee options when building an insurance and risk management plan for a client, it’s not a sustainable or effective strategy. Agents who consistently insure risks that competitors manage will soon find themselves with many unhappy clients.
Service, Stability And Value
Business owners apply the same criteria as any customer or client, they expect to receive the best service and if they don’t, they will look elsewhere. Agents who fail to live up to those expectations on a consistent basis will lose clients regularly. Even if you have the best sales people in the business and maintain a profit or even grow, you will still have a high client turnover.
That turnover may not be an issue now, but it will when you come to sell the agency. Buyers apply a wide variety of criteria when choosing an acquisition. While the headlines are often growth and revenue, they are also looking for certainty and stability. Your agency is only worth what the buyer is willing to pay and uncertainty, like a high turnover of clients, will push that value down.
On the face of it, providing insurance and risk management appears to create a moral dilemma. Do you serve your interests first, or those of your client? If you think about the long-term stability and value of your agency, the answer is a simple one.
